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PP RUEHCN RUEHDBU RUEHGH
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ZNR UUUUU ZZH
P 062320Z NOV 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 1829
INFO RUCPDOC/USDOC WASHDC
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RUEHGZ/AMCONSUL GUANGZHOU 1795
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RUEHDBU/AMEMBASSY DUSHANBE
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RUEHTA/AMEMBASSY ALMATY 1853
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RUEHIL/AMEMBASSY ISLAMABAD 6468
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RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 BEIJING 023549 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/MAC/AP/MCQUEEN 
STATE PASS USTR STRATFORD, WINTER, ALTBACH 
GENEVA PASS USTR 
TREASURY FOR OASIA/ISA - DOHNER AND CUSHMAN 
 
E.O. 12958: N/A 
TAGS: ECIN ETRD PREL PTER EFIN CH ZK RS TU PK
SUBJECT: CHINA/CENTRAL ASIA - URUMQI HIGH LEVEL FORUM 
STRESSES GREATER REGIONAL ECONOMIC INTEGRATION 
 
REF:  (A) 05 BEIJING 15345  (B) BEIJING  19030 
 
¶1. (SBU)  Summary:  At the fourth session of the Central, 
West and South Asia Regional Economic Cooperation High- 
Level Forum held in Urumqi, Xinjiang on September 2, 2006, 
participants effused about the future of regional 
cooperation and economic integration.  The Executive 
Director of the Sunbridge Industrial Group Co. Ltd said 
Sunbridge's goal is to take advantage of preferential 
policies under consideration for a free trade zone centered 
in Horgos as an export processing zone.  The President and 
CEO of Habib Bank Limited said that Pakistan is building 
Gwadar Port and linking it with the Karakorum highway by 
road and rail to create a sea access point for trade with 
Xinjiang.  The Minister for International and Foreign 
Economic Relations of Russia's Sverdlosk region noted plans 
to hire Chinese labor for Russian construction projects. 
In a somewhat discordant note, a representative from the 
Turkish Undersecretariat for Foreign Trade noted rising 
trade frictions with China.  End Summary. 
 
--------------------------------------------- --- 
Kazakhstan - Horgos Land Port Development Begins 
--------------------------------------------- --- 
 
¶2. (SBU)  Ding Jiankui, Executive Director of the Sunbridge 
Industrial Group Co. Ltd of Zhejiang, China noted in his 
speech that Horgos, the largest land highway port of 
western China, is now connected by rail and road to both 
Urumqi, capital of northwestern China's Xinjiang Province, 
and Yining, 429 miles to the west near the Kazakh border . 
Horgos is accessible year round.  Ding also noted that 
railway construction has started to connect Horgos to 
Saliozeke, Kazakhstan. 
 
¶3. (SBU)  Sunbridge's goal, according to Ding, is to take 
advantage of preferential policies under consideration for 
a free trade zone centered in Horgos as an export 
processing zone.  The free trade zone will initially 
include wholesale and retail outlets.  Later the Sunbridge 
Group plans to help match Central Asian buyers and Chinese 
suppliers of building material equipment, electromechanical 
products, automobile parts and other equipment.  (Note: 
The land port at Horgos is approximately 670km by road from 
China's largest western city of Urumqi - an 8 hour drive - 
and 378km to Almaty, Kazakhstan.  End note.) 
 
¶4. (SBU)  While the land crossing at Horgos is being 
developed for formal trade, the vast majority of roads 
linking China to Kazakhstan (over forty based on recent 
press reporting) are loosely guarded and have no customs or 
trade processing facilities.  A German businessman who has 
lived in Xinjiang for the past ten years commented 
privately to Econoff that Kazakh border guards routinely 
allow people to cross the border without visas in return 
for a few U.S. dollars. 
 
--------------------------------------------- ----- 
Pakistan - Link to the Sea and Widen the Karakorum 
--------------------------------------------- ----- 
 
¶5. (SBU)  At the Forum, Zakir Mahmood, President and CEO of 
Habib Bank Limited (HBL), said that Pakistan is building 
Gwadar Port and linking it with the Karakorum highway by 
road and rail to create a sea access point for trade with 
Xinjiang.  He also announced the widening of the Karakorum 
Highway to triple its capacity.  (Note: The Karakorum runs 
from Xinjiang's western city of Kashgar to Islamabad, 
Pakistan.  A German diplomat at the conference who has 
traveled extensively in the region noted that winter 
 
BEIJING 00023549  002 OF 003 
 
 
weather conditions often close the pass for up to six 
months per year.  End note.) 
 
--------------------------------------------- ----- 
Pakistani Habib Bank Buying Stake in Xinjiang UCCB 
--------------------------------------------- ----- 
 
¶6. (SBU)  Mahmood told Econoff that Habib Bank is 
negotiating to take a 20 percent stake in Urumqi City 
Commercial Bank (UCCB).  Pricing and due diligence, among 
others details, are still under discussion, but Mahmood is 
optimistic about the momentum already generated.  HBL 
opened its Beijing office in December 2005 and within three 
months began negotiating for an investment in a Chinese 
bank, he noted. 
 
¶7. (SBU)  Mahmood characterized the Chinese as eager to 
attract capital and interested in western management 
expertise.  When asked about potential bookkeeping 
irregularities in China, Mahmood noted that UCCB was 
willing to use western accounting practices and that HBL 
had begun a thorough review of UCCB's loan portfolio. 
 
¶8. (SBU)  HBL Bank had only one year of experience in China 
and could not establish its own branches until it has been 
in country for two years, Mahmood noted.  Capital 
requirements are also an issue in establishing a broader 
banking presence in China.  Since the Pakistani rupee to 
USD rate has fluctuated over the past year, HBL wanted to 
revalue its assets.  This needed to be negotiated with the 
Chinese, he added. 
 
¶9. (U)  HBL is planning to expand UCCB's banking network 
beyond its current 69 branches in Xinjiang, arrange a 
training program in Karachi for UCCB executives, and 
establish cooperation with UCCB in international business 
and settlement through HBL's 26 country, five continents 
international network.  Possibilities also exist for 
cooperation and assistance in technology improvements, 
business development, risk management and internal controls. 
 
¶10. (U)  Mahmood said HBL was established in 1941 and 
privatized in 2004 with a 51 percent stake acquired by the 
Aga Khan Fund for Economic Development.  HBL has assets of 
USD 9.1 billion, USD 2.5 billion of which are international 
assets.  HBL has 1,425 domestic branches, 45 international 
branches, three subsidiaries - UK, Hong Kong and Australia, 
representational offices in Iran and China and joint 
ventures in Nepal, a 20 percent stake, and Nigeria, a 17 
percent stake. 
 
------------------------------------ 
Chinese Labor to Build Russian Homes 
------------------------------------ 
 
¶11. (SBU)  Dr. Viktor Koksharov, Minister for International 
and Foreign Economic Relations of the Sverdlosk Region in 
Russia commented to Econoff that for the first time a 
delegation company is seeking Chinese labor for Russian 
construction projects.  Dr. Koksharov said Chinese laborers 
are cheaper and more reliable than their Russian 
counterparts.  There were "problems" with Russian 
construction workers that might be avoided by importing 
labor from China he added, though he did not elaborate. 
 
--------------------------------------------- ------ 
Platitudes Aside - Turkey Addresses Trade Frictions 
--------------------------------------------- ------ 
 
¶12. (SBU)  In a departure from the other effusive speeches 
 
BEIJING 00023549  003 OF 003 
 
 
regarding greater economic integration under the guidance 
of the Shanghai Cooperation Organization, Ender Oncu, Head 
of Department for the Republic of Turkey Prime Ministry, 
Undersecretariat for Foreign Trade, General Directorate of 
Agreements addressed bilateral trade frictions with China. 
Oncu stated that the Turkish trade deficit, especially over 
the last five years, "seems to be disturbing."  Fifteen 
percent of Turkey's total trade deficit is attributed to 
China.  Oncu said Turkey's trade deficit with China reached 
USD 4.0 billion and USD 6.3 billion in 2004 and 2005 
respectively. 
 
¶13. (SBU)  Another "disturbing" trend, according to Oncu, 
is Turkey's exports to China which are limited to a few 
commodities (primarily raw materials), while imports from 
China include a wide range of finished, higher value-added 
products.  The share of Turkish exports to China's total 
import volume was only 0.08 percent in 2005.  Oncu noted 
that Turkey launched a "China Market Access Project" in 
2005 and would organize a trade delegation to Shanghai and 
Beijing September 18-22 to address the broader Turkey-China 
trade relationship. 
 
------- 
Comment 
------- 
 
¶14. (SBU)  Forum participants had many visions and plans to 
expand regional cooperation, but the vast distances between 
trading centers and undeveloped infrastructure pose 
daunting challenges.  End comment. 
 
Randt